Understanding Contract Language: Words to Watch for in A/E Contracts
Engineering professionals often work on design projects with other professionals or provide services directly to a client. The project team spends a significant amount of time on understanding the project requirements and ways to address the project objectives. But it is also important to document the understanding and expectations of the design professional and client. These expectations are spelled out in a document known as a contract, an agreement between two or more parties.
It is important to identify the risks that may arise during the execution of contract work to protect all parties. Because contracts are binding and enforceable by law, engineering professionals must have knowledge of a contract’s legal terms and experience in reviewing contract language. I share some tips from my experience negotiating contract agreements below.
What a contract should include
While a contract could be an oral agreement, it should definitely be in writing to be legally enforceable. The parties signing the contract must have the legal capacity to enter into a contract. Individuals signing the contract must have the authority to bind their respective entities/companies.
Basic elements of a contract include the scope of work, schedule, fee, description of each parties’ responsibilities, termination process, dispute resolution, insurance requirements, and other legal elements like governing law.
When a dispute arises, the court system determines the intent of the contract and its terms/conditions, not the parties who signed the agreement. Therefore, it’s very important for the contract language to clearly state the parties’ intentions, requirements, responsibilities, and understanding of the project.
Contract words and phrases to note
Standard of care clause. Engineering contracts usually include a standard of care clause that, under the common law, means that design professionals are expected to exercise reasonable care in applying their knowledge, experience, and judgement. However, a contract’s language may increase the standard of care beyond that required by common law.
For example, a contract may include language requiring the consultant to “furnish its best skill and judgement in the performance of the consultant’s work.” Language more favorable to the design professional could be that the “consultant agrees to perform its services in a manner consistent with the level of care and skill ordinarily used by others professionals performing similar services at the same time under similar circumstances.”
Indemnification. Engineering professionals should carefully review any contract language related to indemnification, or compensation for harm or loss. Beware of unfavorable language such as the “consultant shall defend the indemnified parties against any claim which may potentially give rise to indemnification of the indemnified parties, even if such claim alleges that the indemnified parties are wholly or partially at fault causing the loss.” Accepting such a statement could mean accepting complete responsibility and liability for a claim even when you are only partially at fault.
Attorney requirements. Some contracts include language that requires “at the request of any indemnified party, the consultant shall retain an attorney to represent such indemnified party in the defense of any such claims.” This should be avoided, as it would require you to pay for a defense separately outside the insurance claim, as insurance companies typically have their own attorneys to defend a claim.
Guarantee of performance. Other words to be aware of include “highest,” “strict conformance with,” and “any and all.” The more absolute the terms, the harder it is for the consultant to justify even understandable issues that may arise. Generally, a design professional may not be able to guarantee performance of a product or system. I recommended carefully reviewing any language associated with the performance warranty.
Always remember that contract review, negotiations, and acceptance are critical for risk management for any business. Review contract language with special care to protect your company and focus on delivering a successful project!
Harish J. Patel, PE, PMP, RLS, LEED AP, is Executive Vice President and COO of EBA Engineering, Inc. He has more than 30 years of experience and is responsible for negotiating agreements with EBA’s clients and subconsultants. He can be reached at 410.504.6101, firstname.lastname@example.org, or on LinkedIn.
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